Shutting off the miracle-drug spigot

House Speaker Nancy Pelosi was right last week when she called her latest health-care-reform proposal a "historic moment": After decades of life-saving and cost-cutting scientific innovations from drug and medical-device companies, the government is about to step in and stifle the R&D that is our best hope for improving health outcomes.

Pelosi's bill may cost pharmaceutical companies $150 billion over a decade -- nearly double the amount they conceded when they cut a White House-approved deal with Sen. Max Baucus this summer.

The Pelosi bill is a prescription for fewer new life-saving drugs. By stifling innovation, it would hurt not only industry, but also all of us who'd benefit from new-drug development.

Democrats in Washington are out to cut health-care costs at the expense of the research-intensive (as opposed to generic) pharmaceutical industry. Yet drugs often improve the span and quality of life in a remarkably cost-effective way.

Innovative new drugs have helped many patients avoid costly hospitalization, for example. From 1980 to 2000, the number of days in the hospital per 100 people fell from 129.7 to 56.6, a drop of 56 percent -- so that Americans avoided 206 million days of hospital care in 2000 alone, according to Medtap International, which provides health economics and outcomes-research services.

And a study in 2000 sponsored by the Agency for Health Care Policy and Research concluded that increased use of a blood-thinning drug would prevent 40,000 strokes a year, saving $600 million annually. A 1997 study by the National Bureau of Economic Research found the costs of treatment per episode of major depression fell by 25 percent from 1991 to 1995, largely as a result of new medicines.

New drugs are also generally better than older ones at reducing mortality. In a study of patients who took drugs between January and June 2000, those who took newer medications were less likely to die by the end of 2002.

Yet Washington has grown increasingly hostile to the industry. R&D investments per new-drug introduction nearly doubled between the early '80s and early '90s -- but government approvals have been dropping. Even after drugs are approved for marketing, only about three in 10 now recoup their development costs.

And now Congress is out to make the climate for new-drug development significantly worse. The president has bragged that he intends to eke out huge cost savings at drug companies' expense: "The pharmaceutical industry has already said they're willing to put $80 billion on the table," adding, "We might be able to get $100 billion out or more." The industry was willing to "give" back its profits because it was told it wouldn't have a seat at the negotiating table if it didn't go along.

But now Pelosi has set up her own "negotiating table" -- nearly doubling the amount Washington would confiscate from the industry and planning vast cuts in what Medicare would pay for drugs -- a provision that the industry was assured was off the other table. Give 'em a hand, they'll take an arm.

Nor are the drug companies the only target. The Pelosi bill has $20 billion in "user fees" (read: taxes) on medical-device manufacturers. New devices such as artificial joints, pacemakers and insulin pumps are often developed by small startup companies -- those least capable of paying these punitive up-front regulatory expenses. And the working Senate bill aims at $40 billion from the industry.

The tactics employed by the administration and Congress add up to sheer bullying -- and while they're battering the drug industry, patients are the ones ultimately getting beaten up.

Jeff Stier is an associate director of the American Council on Science and Health. Henry Miller, a physician and Hoover Institution fellow, was an FDA official from 1979 to 1994.